The paper published by the Organisation for Economic Co-operation and Development this month ranks New Zealand’s house prices the second worst in the developed world on a price to income ratio, and the most overpriced on a price to rent ratio.

It says that relative to rents, New Zealand house prices are 70 per cent too high.

Mr Key denied this proved the country’s housing market was in crisis.

“If you look at what’s driving the housing market in New Zealand, it’s a combination of factors. One is just buoyancy in the overall economy and high levels of employment … that are encouraging people to want to go into the housing market,” he told Radio New Zealand on Monday.

He said there was no indication this was going to slow.

“If anything, if you look at the budget, it made it quite clear there will be strong growth in the years ahead.”

He tried to deflect the statistics by referring to house price rises of 96 per cent between 1999 and 2008 under the last Labour government.

Mr Key also said Auckland prices were still well below those in cities such as London and Sydney.

But Labour’s housing spokesman Phil Twyford says Mr Key is in denial about the housing crisis.

“We’ve got falling rates of home ownership, a generation of young New Zealanders who cannot get a home of their own. At the bottom end of the market there are people living in garages,” he said.

To bring down house prices, Labour wants to bring in a capital gains tax, as well as limits on foreign speculators buying up property.

The OECD report states New Zealand’s house prices have had an annual rise in real terms of 8.2 per cent. Australia and the US were next closest, each with 6.6 per cent, followed by Canada with 5.2 per cent and Germany with 5.1 per cent.